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NISM Certifications · NISM-Series-XV: Research Analyst · Qualities of a Good Research Report

An analyst values a company at Rs 600 per share using earnings estimates. In the report, the analyst adjusts the stated EPS growth assumption upward by a large margin only in the final draft to justify a Buy rating, without recording the reason. Which is the most appropriate evaluation?

It is unacceptable because assumptions should rest on evidence and be documented. Raising growth inputs without reason to justify a Buy rating shows the conclusion was driven first and the analysis second, which undermines objectivity regardless of later price movement.

  1. AAcceptable, as final-draft changes need no documentation
  2. BAcceptable, provided the rating is within the firm's rating scale
  3. CUnacceptable, because assumptions should be driven by evidence and the changes should be justified and documented, not worked backwards to fit a ratingCorrect
  4. DUnacceptable only if the stock price later falls

Explanation

A good report derives its conclusion from objective analysis and keeps records supporting its assumptions. Reverse-engineering inputs to justify a predetermined rating compromises objectivity and integrity. The outcome of the stock price later does not determine whether the process was sound.

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